Consumer confidence dropped in March, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s overall index fell from 77.6 in February to 71.8 in March, essentially erasing the gains seen in the previous two months. Perceptions about the current and future economic environment were both lower.
It is hard to say why confidence fell unexpectedly this month. The consensus had been for it to rise. These types of sentiment surveys tend to react to pocketbook issues, so it is likely due from the impact of higher gasoline prices or the increased payroll tax. In addition, it could also be the continuing fiscal discussions and frustrations with the political process. Across-the-board federal budget cuts are a prominent discussion in the media, for instance. At the same time, the University of Michigan survey has often reacted favorably to higher stock values, which should have had a positive impact on these numbers.
With that said, increased energy costs have not had a material impact on inflationary expectations. Consumers expect prices to rise 3.3 percent over the next year, unchanged from the past two months and only slightly higher than the 3.1 percent rate of November. Note that consumer prices are actually rising at the 2 percent rate, according to Bureau of Labor Statistics data released this morning, but the expectation is that this figure could rise.
Chad Moutray is chief economist, National Association of Manufacturers.